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What is offshore banking?

A bank that is located outside the country of residence of its depositors is known as an offshore bank. Typically, most offshore account holders are non-residents of the bank's jurisdiction. The popularity of offshore banking is due to the various advantages it offers in comparison with national banking, such as greater privacy, easy access, little or no taxation and protection from political, local or financial instability. While the term originated in the Channel Islands, offshore from the United Kingdom, and while historically most offshore jurisdictions are located on islands, it is now used to refer to all banks offering the above-mentioned advantages, regardless of their location. For example, banks located in Switzerland, Luxembourg and Latvia are often referred to as offshore banks.

Benefits of having an offshore bank account

The main advantages of having an offshore account, and the reasons for offshore banking's growing popularity, are:

Disadvantages of having an offshore bank account

There are some disadvantages to consider before opening an offshore bank account:

Blacklists of offshore jurisdictions and their impact

National and international authorities have developed several grey- and blacklists in order to tackle uncontrolled offshore banking. These lists usually include jurisdictions that refuse to co-operate on tax or other matters requiring the provision of information on their customers. For example, the EU is drafting a common blacklist of uncooperative jurisdictions, which should be finalised by September 2017. The plan is for this list to include not only the names of offshore jurisdictions and tax havens, but also sanctions and other defensive measures against these countries. Common sanctions against blacklisted jurisdictions include:

Interestingly, those who defend offshore banking tend to criticise any attempt to regulate and impose sanctions on offshore jurisdictions. They consider the process to be driven, not by security or financial concerns, but by the desire of domestic tax agencies and banks to access the funds held in offshore accounts.

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